How Much Money Can You Put In An Fsa

I've gone in to great detail on health savings accounts (HSAs), just accept paid little attending to their cousin, the flexible spending business relationship, aka an FSA (oddly, the IRS refers to them as "flexible spending arrangements", but I take never heard anyone else use that term).

HSAs are tax advantaged savings accounts that can be used to pay for eligible medical expenses. They are paired with loftier deductible wellness plans (HDHPs). Tax-gratuitous (pre-tax) contributions and withdrawals for qualified medical expenses, employer contributions, and growth through investments brand them an outstanding option for those who are eligible.

And that's the rub. In order to be eligible to contribute to an HSA, you must exist currently enrolled in an HDHP. What if you are not enrolled in an HDHP? Then yous should give some potent consideration to contributing to an FSA instead.

So, I thought I'd give a little Q&A format rundown of flexible spending accounts – their pros, cons, maximum contributions, eligible expenses, & merely about anything else I figure people might be curious on. Open up enrollment for wellness intendance and other employee benefits are is coming up shortly, so now is the time to figure out if an FSA is a good fit for you (and how much yous should contribute).

What is an FSA?

Flexible spending accounts are a type of of tax-advantaged health care savings account that employees offer every bit a benefit of employment to employees. The main purpose and benefit of contributing to and using an FSA is that any contributions made are pre-revenue enhancement dollars. Yet, any qualified medical expenses paid for using the FSA are tax-gratis dollars. So, you effectively pay no taxes on those expenses, by virtue of reducing your taxable income.

If yous are in the 22% taxation bracket, for example, any qualified expenses paid for by an FSA would essentially result in a 22% out-of-pocket savings.

Contributions to an FSA are voluntarily fabricated past the employee or by the employer at their discretion. FSA accounts are not portable, meaning that the employer owns them and the employee cannot use funds beyond the cease of the year if they go out the employer.

FSA

What are FSA Qualified Medical Expenses?

Expenses that are eligible to be paid for by HSAs are also eligible to be paid for past FSAs.

Mutual eligible expenses include dentist and doctor visits, procedures, and co-pays, prescription drug costs or co-pays, laser eye surgery, center exams, contacts, eyeglasses, and chiropractor visits.

If you have whatsoever medical weather condition that require special equipment or handling, these expenses are typically covered too.

For a full list of what medical expenses are covered by a flexible spending account, check out IRS publication 502. Update: as a result of the CARES Act, OTC medications and menstrual care products are now considered qualified medical expenses.

4 medical expenses that are not covered by FSAs that i might normally believe are:

Amounts paid for health insurance premiums.
Amounts paid for long-term intendance coverage or expenses.
Y'all tin can't pay off outstanding bills incurred prior to your plan yr.
Domestic partner and children of domestic partners are not eligible to participate in the healthcare FSA.

When y'all can Contribute to an FSA?

You must elect your FSA contributions at the starting time of the plan year. And then, your employer will deduct amounts periodically (generally, every payday), pro-rated to marshal to your annual election. You lot can change or revoke your election simply if in that location is a change in your employment or family unit condition that is specified past the program.

What is the 2022 FSA Maximum Contribution?

The IRS set a maximum FSA contribution limit in 2022 at $ii,850 per qualified FSA ($100 more than than the prior year). Every bit with other tax advantaged accounts, the maximum contribution is annually indexed to inflation.

Oddly, many employers might but offer that y'all can contribute at levels below the IRS maximum. This is different the 401K maximum contribution, where all employees tin can contribute up to the federal almanac maximum.

In that location are some ways to become around the maximum. If you concur ii or more jobs (with unrelated employers), you tin elect upward to $2,850 under each employer's FSA plan (or upwards to each employer'south maximum allowed). If married, each of 2 spouses tin contribute to their employer'southward program (effectively doubling the total contribution).

What are the Central Difference Betwixt an FSA and HSA?

If you lot've had an FSA in the past or are considering ane, you lot are probably wondering how FSAs differ from HSAs. In that location are a few key difference when comparing HSAs vs. FSAs:

Yous ain an HSA, your employer owns the FSA. In other words, you tin have an HSA with you lot if yous exit your employer, but y'all cannot do the same with an FSA. This is referred to as "portability" – HSAs are portable, FSAs are not portable.
You can comport over 100% of HSA funds from one year to the next, FSA carryovers are much more than express.
Y'all can invest funds in an HSA, y'all cannot invest funds in an FSA.
Contributions maximums between the 2 differ, simply HSAs are higher, plan permitting.

Which is better? HSA features and benefits are superior to FSAs. However, FSAs are a solid do good for those who are not eligible to contribute to an HSA.

The FSA Use-information technology-or-Lose-it Dominion & Carryover Dominion

The biggest downside to FSAs has historically been the so-called "apply it or lose it" rule. This rule stated that you must employ all of your annual contributions to an FSA by the finish of that calendar year.

The claiming with the utilise-it-or-lose-it dominion, was that you had to make your annual election earlier the start of the plan year. And if you overestimated your expenses, yous would lose any unused contributions at the cease of the year.

The IRS made re-evaluated the FSA "Apply information technology or Lose information technology" dominion, and now there are two changes that employers tin implement (though it is not mandatory):

A two month +fifteen mean solar day grace menstruum: whatever unused funds contributed in a given year can be used in the kickoff two months and 15 days of the post-obit twelvemonth.
An FSA carryover rule: allowing an inflation-adjusted twenty% carryover or rollover amount. For 2022, the carryover dominion allows up to $570 in carryover funds (20% of the $2,850 maximum FSA contribution).

2022 Update: as a COVID-relief measure, Congress and the IRS approved new FSA rule changes for 2021 and 2022 that allow up to the maximum FSA contribution to be carried over into the subsequent year (2021 contributions to 2022). This rule is voluntarily implemented by employers (not mandatory). Without further legislation, FSA carryovers from 2022 to 2023 volition revert back to the $570 maximum.

How Much Should you Contribute to an FSA?

This is the catchy part. Y'all have to elect how much to contribute to an FSA earlier the calendar yr begins. And you lose what you don't spend. So, how much should you contribute to an FSA, and so y'all comprehend most of your expenses without losing them at the end of the twelvemonth? This will take a bit of predictive analysis.

The near mutual uncovered and qualified medical expenses y'all might have typically include:

dental co-pays
prescription drug co-pays
prescription eyeglasses and/or contact lens
eye exams or middle exam co-pays
orthodontics
OTC medications

Use your estimated expenses in these areas equally a base-line. Beyond that, add in any other predicted expenses for your family unit. If yous have special medical needs that you are 100% sure you will have that exceed the maximum almanac contribution your employer allows, then it makes a lot of sense to max out your FSA for that year.

Flexible Spending Account Discussion:

What questions do you have virtually FSAs?
Do y'all contribute to an FSA?
How much practice you lot contribute annually, and how do you calculate that amount?
Have you ever been burned by the "Use it or Lose it" rule? How much did you lose?

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